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1985, petitioner and Mr. Dalton formed Compania Minera Adventura
(CMA), which leased the copper mines and the plant from CME.
During 1988, in order to terminate their relationship and to
pay an outstanding debt that he owed to petitioner, Mr. Dalton
transferred his entire interest in CME to petitioner. Prior to
Mr. Dalton's transfer of his CME interest, petitioner never
requested or demanded from Mr. Dalton any payment on loans
allegedly made by petitioner to Mr. Dalton.
Petitioner advanced money to CME and/or CMA and alleges that
such advances were loans. Petitioner held the power of attorney
for CME. For petitioner's advances to CME/CMA, notes were
prepared establishing interest rates and maturity dates, but no
repayment schedules were prepared and no collateral for the notes
was given. On the maturity dates of the notes, petitioner did
not pursue collection of either the principal of or the interest
due on the notes.
During 1990, petitioner sold his interest in CME.
Petitioners provided no books, records, or tax returns with
respect to their interest in CME/CMA.
OPINION
The issue we must resolve in the instant case is whether
petitioners are entitled to two bad debt deductions pursuant to
section 166(a)(1) for the worthlessness of loans allegedly made
by petitioner to CME/CMA. The first bad debt deduction, claimed
by petitioners on their 1989 amended return, was for the
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